For What It's Worth
A reinvented formula tells you if your business is as successful as you think it is.
Al Weatherhead, 73, can recall perfectly the board meeting he
attended a few years ago at which one of his directors demanded he
get rid of a big chunk of his company. The distribution arm of
Weatherhead Industries, Prodco & Ashland Municipal Supplies in
Cleveland was earning only an 8 to 9 percent return on capital, in
contrast with the benchmark 12 percent.
"It's necessary for you to take
corrective action," the director said. "Sell the
thing!"
According to the Economic Value Added (EVA) performance
measures Weatherhead had been given by New York City
management consulting firm Stern Stewart & Co., the
director's suggestion was the right one. So Weatherhead sold
the distribution side of his business.
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"That was one of the truly great benefits of EVA,"
Weatherhead says. Today he employs 150 people in the original
business of plastic bottle cap manufacturing, and the company's
revenue of approximately $25 million is up sharply from $15 million
at the time of the divestiture in 1993.
A few years before Weatherhead's decision to divest, he had
implemented EVA to help provide guidance to company managers.
Hundreds of other companies, including such well-known
organizations as Coca-Cola, Eli Lilly and Steelcase, have also
adopted EVA-style measurement systems. And fans of this performance
gauge include management guru Peter Drucker as well as the
evangelists at Stern Stewart.
"[EVA] tells you whether you've been as skillful as
you'd like to think," Weatherhead says. "It measures
your true performance."
Mark Henricks is an Austin, Texas, writer who specializes in
business topics and has written for Entrepreneur for nine
years.
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